Thursday, June 20, 2024

‘Stick with what’s working’ as markets head into June trade: Fundstrat’s Tom Lee

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Yahoo Finance All Markets Summit

Cindy Ord

Markets are heading into June action with major stock averages (SP500)(COMP:IND)(DJI) not far off record highs, and Fundstrat Global Advisors Managing Partner Tom Lee said this week investors shouldn’t stray from assets that have gained ground so far in 2024.

“Investors have been hesitant all year and I think we have had some short pullbacks, but I think the best strategy for investors is to really stick with what’s working,” Lee told CNBC in a television interview this week. He has said there’s money to put to work in the markets. More than $6T in cash is parked in money market funds, according to Federal Reserve data.

Lee said what’s working in equities are AI-related names such as Nvidia (NVDA) and highly correlated shares like Super Micro Computer (SMCI). “Ozempic-related trades,” are also doing well, referring to drugmakers that make popular weight-loss treatments.

Shares of AI chipmaker Nvidia (NVDA) have shot up 121% this year amid the AI investment frenzy and the company’s strong Q1 results and guidance. AI server company Super Micro (SMCI) has climbed 176% in the first five months of the year. Shares of Ozempic maker Novo Nordisk (NVO) and Zepbound manufacturer Eli Lilly (LLY) have jumped 31% and 40%, respectively.

The industrial (XLI) and financial (XLF) sectors are performing well, as is bitcoin (BTC-USD) and the cryptocurrency’s proxies, Lee said.

Gains in small-cap stocks (RTY) (IWM) are sharply lagging those for large-caps (SP500) (SPY)(QQQ) this year, but there’s a “growing small-cap stealth rally,” Lee said. Small-caps have been stung by shrinking odds the Federal Reserve will deliver a hefty amount of rate cuts this year, but that doesn’t strip away their “fundamental attractiveness,” he said.

“Earnings growth is close to 19%, the median Russell 2000 (RTY) stock and the median P/E is 11 times – so you’re getting far better earnings growth than the S&P (SP500) and a much lower P/E multiple,” the strategist said.

The Russell 2000 (RTY) has risen 2% this year, versus the S&P 500 (SP500) advance of nearly 11%.

Fundstrat’s year-end S&P 500 (SP500) target of 5,200 is “too low,” considering the potential for S&P 500 EPS growth to $280 next year, Lee said. “I think we’re still just deciding whether or not there is a speed bump between June and December,” he said.

Here are some ETFs to track major stock averages: (IVV), (VUG), (IWO), (SH) and (SRTY).

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